# W&T Offshore Inc: Form 10-Q for the period ended Mar 31, 2024

- Company: [W&T Offshore Inc](/companies/wti.md) (CIK 1288403)
- Form: 10-Q
- Filed: 2024-05-10
- Accepted by EDGAR: May 10, 2024, 17:00 ET
- Period: 2024-03-31
- Accession: 0001558370-24-007815
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1288403/000155837024007815/wti-20240331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1288403/000155837024007815/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $140.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$4.0k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $1.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$11.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.08 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 146,857,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $11.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $1.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2024-03-31 | $94.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $207.7m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $1.13bn | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $192.0m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-03-31 | $384.2m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $7.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | $20.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 39,459 characters.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1. *Financial Statements*, of this Quarterly Report, as well as our audited consolidated financial statements and the notes thereto in the 2023 Annual Report and the related MD&A included in Part II, Item 7, *Management’s Discussion and Analysis of Financial Condition and Results of Operations*, of our 2023 Annual Report. Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report to “us,” “we” and “our” are to W&T Offshore, Inc. and its wholly owned subsidiaries.

### CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. Although we believe that these forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. If the risks or uncertainties materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements and assumptions. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “forecast,” “may,” “objective,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We assume no obligation, nor do we intend, to update these forward-looking statements, unless required by law.

The information included in this Quarterly Report includes forward-looking statements that involve risks and uncertainties that could materially affect our expected results of operations, liquidity, cash flows and business prospects. Such statements specifically include our expectations as to our future financial position, liquidity, cash flows, results of operations and business strategy, potential acquisition opportunities, other plans and objectives for operations, capital for sustained production levels, expected production and operating costs, reserves, hedging activities, capital expenditures, return of capital, improvement of recovery factors and other guidance. Actual results may differ from anticipated results, sometimes materially, and reported results should not be considered an indication of future performance. For any such forward-looking statement that includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that, while we believe such assumptions or bases to be reasonable and make them in good faith, assumed facts or bases almost always vary from actual results, sometimes materially. Known material risks that may affect our financial condition and results of operations are discussed in Part I, Item 1A. *Risk Factors,* and market risks are discussed in Part II, Item 7A. *Quantitative and Qualitative Disclosures About Market Risk*, of our 2023 Annual Report, and may be discussed or updated from time to time in subsequent reports filed with the SEC.

Reserve engineering is a process of estimating underground accumulations of crude oil, NGLs and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data, and the price and cost assumptions made by reservoir engineers. In addition, the results of drilling, testing, and production activities, or changes in commodity prices, may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of crude oil, NGLs and natural gas that are ultimately recovered.

All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

### BUSINESS OVERVIEW

We are an independent oil and natural gas producer, active in the exploration, development and acquisition of oil and natural gas properties in the Gulf of Mexico. As of March 31, 2024, we hold working interests in 63 producing offshore fields in federal and state waters (which include 54 fields in federal waters and 9 in state waters). We currently have under lease approximately 693,900 gross acres (536,200 net acres) spanning across the outer continental shelf off the coasts of Louisiana, Texas, Mississippi and Alabama, with approximately 8,000 gross acres in Alabama state waters, 532,400 gross acres on the conventional shelf and approximately 153,500 gross acres in the deepwater. A majority of our daily production is derived from wells we operate.

### Recent Developments

On January 16, 2024, we closed on our acquisition of rights, titles and interest in and to certain leases, wells and personal property in the central shelf region of the Gulf of Mexico, among other assets, for $77.2 million (including closing fees and other transaction costs). The acquisition was funded using cash on hand. We also assumed the related AROs associated with these assets.

On March 17, 2024, we amended the Term Loan to provide for (i) the deferral of $30.1 million of principal repayments during 2024; (ii) the resumption of principal repayments in the first quarter of 2025 with the option, but not obligation, to catch up on deferred amortization through excess cash flow sweep; (iii) the payment of cash interest each quarter on the remaining principal balance; (iv) the payment of an amendment fee of $200,000 to be paid in four quarterly installments of $50,000 each, starting in first quarter of 2024; and (v) the modification of the optional prepayment schedule as follows: redemption at 103% of par from May 2024 to May 2026, redemption at 102% of par from May 2026 up to May 2027, and 101% of par from May 2027 up to maturity in May 2028. The premium will be applicable to the aggregate principal amount outstanding at the time of any optional redemption.

On March 28, 2024, we amended the Credit Agreement to extend the maturity date to April 30, 2024.

In April 2024, the Bureau of Ocean Energy Management (“BOEM”) released a final rule that changes the way BOEM evaluates the financial health of companies and offshore assets in setting financial assurance requirements. Under the new rule, BOEM streamlined the criteria used to evaluate the financial health of an energy company down to two factors: (i) the company’s credit rating, and (ii) the ratio of the company’s proved reserves to decommissioning liability associated with the reserves. The new rule also codifies the usage of Bureau of Safety and Environmental Enforcement decommissioning estimates to evaluate financial assurance requirements and allows third party guarantors (upon agreement with BOEM) to provide limited guarantees to specific amounts or specific leases instead of the blanket guarantees that have been used in the past. Finally, the new rule also requires a base financial assurance requirement of $500,000 for federal rights-of-use and easements (“RUEs”) to match the requirement for state RUEs. To provide the industry with flexibility to meet the new financial assurance requirements, BOEM will allow current lessees and grant holders to request phased-in payments over a three-year period. BOEM estimates that the industry will be required to provide $6.9 billion in new financial assurances under the new rule, which will take effect on June 24, 2024.

On May 10, 2024, we declared a regular quarterly dividend of $0.01 per share for the second quarter of 2024. We expect to pay the dividend on May 31, 2024, to stockholders of record as of the close of business on May 24, 2024.

### Business Outlook

Our financial condition, cash flow and results of operations are significantly affected by the volume of our oil, NGLs and natural gas production and the prices that we receive for such production. Changes in the prices that we receive for our production impact all aspects of our business; most notably our cash flows from operations, revenues, capital allocation and budgeting decisions and our reserves volumes. Prices of oil, NGLs and natural gas have historically been volatile and can fluctuate significantly over short periods of time for many factors outside of our control, including changes in market supply and demand, which are impacted by weather conditions, pipeline capacity constraints, inventory storage levels, domestic production activities and political issues, and international geopolitical and economic events.

The U.S. Energy Information Administration (“EIA”) published its latest Short-Term Energy Outlook in April 2024. Spot prices for West Texas Intermediate (“WTI”) oil averaged $81.28 per barrel in March 2024, an increase of $4.03 per barrel compared with February 2024 and the third consecutive month when the WTI price increased. The EIA is forecasting WTI spot prices will rise in the coming months as a result of heightened geopolitical risk related to attacks targeting commercial ships transiting through the Red Sea shipping channel and general elevated tensions around the region. In addition, the recent extension of the Organization of the Petroleum Exporting Countries and Russia voluntary production cuts add to upward price pressure at the time of the year when oil demand typically increases because of the spring and summer driving seasons in the Northern Hemisphere. As a result of the combination of flat production and rising consumption, the EIA is forecasting that WTI spot prices are expected to average $85.78 per barrel for the remainder of 2024.

Spot prices for Henry Hub natural gas averaged $1.49 per MMBtu in March 2024. The U.S. winter natural gas withdrawal season ended with 39% more natural gas in storage compared with the five-year average. The EIA is forecasting that from April 2024 through October 2024, less natural gas will be injected into storage than is typical, largely because the EIA is expecting the U.S. to produce less natural gas on average in the second and third quarters of 2024 compared with the first quarter of 2024. Despite the lower production, the EIA still expects the U.S. will have the most natural gas in storage on record when the winter withdrawal season begins in November. As of result of high inventories, the EIA expects the Henry Hub spot price to average less than $2.00 per MMBtu in the second quarter of 2024 before increasing slightly to $2.15 per MMBtu in the third quarter of 2024. The EIA forecasts that the average spot price for Henry Hub in 2024 will be $2.16 per MMBtu.

In addition to the impact of volatile commodity prices on our operations, continuing inflation could also impact our sales margins and profitability. The annual inflation rate for March 2024 was 3.5%, a slight increase from February 2024. In the last few years, these inflationary pressures have caused the Federal Reserve to tighten monetary policy by approving a series of increases to the Federal Funds Rate. As of March 31, 2024, the Federal Reserve benchmark rate ranged from 5.25% to 5.50%. Although the Federal Reserve has stated that they will begin reducing the benchmark rate in 2024, if inflation were to continue to rise, it is possible the Federal Reserve would continue to take action they deem necessary to bring inflation down and to ensure price stability, including further rate increases, which could have the effects of raising the cost of capital and depressing economic growth, either or both of which could negatively impact our business.

### RESULTS OF OPERATIONS

### Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

### Revenues

The following table presents information regarding our revenues, production volumes and average realized sales prices (which exclude the effect of hedging unless otherwise stated) for the three months ended March 31, 2024 and 2023 (in thousands, except average realized sales prices data):

| ​ ​ ​ Revenues: | ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ | ​ ​ ​ ​ ​ Change ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Oil | ​ | $107,015 | ​ | $97,000 | ​ | $10,015 |
| NGLs | ​ | 7,469 | ​ | 7,795 | ​ | (326) |
| Natural gas | ​ | 21,616 | ​ | 24,804 | ​ | (3,188) |
| Other | ​ | 4,687 | ​ | 2,126 | ​ | 2,561 |
| Total revenues | ​ | 140,787 | ​ | 131,725 | ​ | 9,062 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Production Volumes:** | ​ |  | ​ |  | ​ |  |
| Oil (MBbls) (1) | ​ | 1,400 | ​ | 1,350 | ​ | 50 |
| NGLs (MBbls) | ​ | 343 | ​ | 294 | ​ | 49 |
| Natural gas (MMcf) (2) | ​ | 8,733 | ​ | 7,677 | ​ | 1,056 |
| Total oil equivalent (MBoe) (3) | ​ | 3,199 | ​ | 2,924 | ​ | 275 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Average daily equivalent sales (Boe/day) | ​ | ​ 35,148 | ​ | ​ 32,489 | ​ | ​ 2,659 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Average realized sales prices:** | ​ |  | ​ |  | ​ | ​ |
| Oil ($/Bbl) | ​ | $76.44 | ​ | $71.85 | ​ | $4.59 |
| NGLs ($/Bbl) | ​ | 21.78 | ​ | 26.51 | ​ | (4.73) |
| Natural gas ($/Mcf) | ​ | 2.48 | ​ | 3.23 | ​ | (0.75) |
| Oil equivalent ($/Boe) | ​ | ​ 42.55 | ​ | ​ 44.32 | ​ | ​ (1.77) |
| Oil equivalent ($/Boe), including realized commodity derivatives | ​ | 42.97 | ​ | 44.24 | ​ | (1.27) |

(1) MBbls — thousands of barrels of oil, condensate or NGLs

(2) MMcf — million cubic feet

(3) MBoe — thousand barrels of oil equivalent

Changes in average sales prices and production volumes caused the following changes to our oil, NGL and natural gas revenues between the three months ended March 31, 2024 and 2023 (in thousands):

| ​ ​ | ​ ​ Price | ​ | ​ ​ Volume | ​ ​ | ​ ​ Total |
| --- | ---: | --- | ---: | --- | ---: |
| Oil | $6,396 | ​ | $3,619 | ​ | $10,015 |
| NGLs | (1,611) | ​ | ​ 1,285 | ​ | (326) |
| Natural gas | (6,601) | ​ | ​ 3,413 | ​ | (3,188) |
| ​ | $(1,816) | ​ | $8,317 | ​ | $6,501 |

Our average realized sales price for oil and natural gas differs from the WTI average price and the NYMEX Henry Hub average price, respectively, primarily due to premiums or discounts, quality adjustments, location adjustments and volume weighting (collectively referred to as differentials). Oil price differentials primarily represent the transportation costs in moving produced oil at the wellhead to a refinery and are based on the availability of pipeline, rail and other transportation. Natural gas price differentials are strongly impacted by local market fundamentals, availability of transportation capacity from producing areas and seasonal impacts. Prices and differentials for NGLs are related to the supply and demand for the products making up these liquids. Some of them more typically correlate to the price of oil while others are affected by natural gas prices as well as the demand for certain chemical products which are used as feedstock.

Production volumes increased by 275 Mboe to 3,199 Mboe during the three months ended March 31, 2024 compared to the same period in 2023, primarily due to both the January 2024 and the September 2023 acquisitions, partially offset by normal production decline on existing wells.

#### Operating Expenses

The following table presents information regarding costs and expenses and selected average costs and expenses per Boe sold for the periods presented and corresponding changes (in thousands, except average data):

| ​ ​ ​ Operating expenses: | ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ | ​ ​ ​ ​ ​ Change ​ ​ |
| --- | --- | ---: | --- | --- | --- | ---: |
| Lease operating expenses | ​ | $70,830 | ​ | $65,186 | ​ | $5,644 |
| Gathering, transportation and production taxes | ​ | ​ 7,540 | ​ | ​ 6,136 | ​ | ​ 1,404 |
| Depreciation, depletion and amortization |  | ​ 33,937 | ​ | ​ 22,624 |  | ​ 11,313 |
| Asset retirement obligations accretion | ​ | ​ 7,969 | ​ | ​ 7,510 | ​ | ​ 459 |
| General and administrative expenses | ​ | ​ 20,515 | ​ | ​ 19,919 | ​ | ​ 596 |
| Total operating expenses | ​ | $140,791 | ​ | $121,375 | ​ | $19,416 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Average per Boe ($/Boe):** | ​ |  | ​ |  | ​ |  |
| Lease operating expenses | ​ | $22.14 | ​ | $22.29 | ​ | $(0.15) |
| Gathering, transportation and production taxes | ​ | 2.36 | ​ | ​ 2.10 | ​ | 0.26 |
| Depreciation, depletion and amortization | ​ | 10.61 | ​ | ​ 7.74 | ​ | 2.87 |
| Asset retirement obligations accretion | ​ | ​ 2.49 | ​ | ​ 2.57 | ​ | ​ (0.08) |
| General and administrative expenses | ​ | 6.41 | ​ | ​ 6.81 | ​ | (0.40) |
| Total operating expenses | ​ | $44.01 | ​ | $41.51 | ​ | $2.50 |

*Lease operating expenses –* Lease operating expenses, which include base lease operating expenses, workovers, and facilities maintenance expense, increased $5.6 million to $70.8 million during the three months ended March 31, 2024 compared to the same period in 2023. On a component basis, base lease operating expenses increased $13.1 million, workover expenses decreased $2.0 million, and facilities maintenance expense decreased $5.5 million.

Expenses for direct labor, materials, supplies, repair, third-party costs and insurance comprise the most significant portion of our base lease operating expense. Base lease operating expenses increased primarily due to three months of expenses at the fields acquired in January 2024 and September 2023, as well as higher repair, maintenance and labor costs at other fields.

Workover and facilities maintenance expenses consist of costs associated with major remedial operations on completed wells to restore, maintain or improve the well’s production. Since these remedial operations are not regularly scheduled, workover and maintenance expense are not necessarily comparable from period to period. The decreases in workover expenses and facilities maintenance expenses were due to a decrease in projects undertaken.

*Gathering, transportation and production taxes –* Gathering, transportation and production taxes increased $1.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to higher natural gas production volumes partially offset by the decrease in realized prices for natural gas.

*Depreciation, depletion and amortization (“DD&A”) –* DD&A increased $11.3 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The DD&A rate increased to $10.61 per Boe for the three months ended March 31, 2024 from $7.74 per Boe for the three months ended March 31, 2023. The DD&A rate per Boe increased primarily as a result of a higher depreciable base due to our January 2024 acquisition, increases in capital expenditures, future development costs and capitalized ARO and lower proved reserves.

*Asset retirement obligations accretion expense –* Accretion expense is the expensing of the changes in value of our ARO as a result of the passage of time over the estimated productive life of the related assets as the discounted liabilities are accreted to their expected settlement values. Accretion expense increased $0.5 million in the three months ended March 31, 2024 compared to the same period in 2023 primarily due to the increase in our ARO liability.

*General and administrative expenses (“G&A”) –* G&A increased $0.6 million, to $20.5 million for the three months ended March 31, 2024 as compared to $19.9 million for the three months ended March 31, 2023. The increase is primarily due to higher medical claims offset by a decrease in legal expenses.

#### Other Income and Expense Items

The following table presents the components of other income and expense items for the periods presented and corresponding changes (in thousands):

| ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ | ​ ​ 2023 | ​ ​ | ​ ​ ​ ​ ​ Change |
| --- | --- | --- | --- | --- | --- | --- |
| Interest expense, net |  | $10,072 | ​ | $14,713 |  | ​ (4,641) |
| Derivative gain, net | ​ | ​ (4,877) | ​ | ​ (39,240) | ​ | $34,363 |
| Other expense, net |  | ​ 5,230 | ​ | ​ 233 |  | ​ 4,997 |
| Income tax expense |  | ​ 1,045 | ​ | ​ 8,639 |  | ​ (7,594) |

*Interest expense, net –* Interest expense, net, decreased $4.6 million for three months ended March 31, 2024 compared to the same period in 2023 due to the redemption of the 9.75% Notes in February 2023 and lower interest expense on the lower outstanding principal balance of the Term Loan, partially offset by interest expense incurred on the 11.75% Notes issued in late January 2023.

*Derivative gain, net –* During the three months ended March 31, 2024, we recorded a $4.9 million derivative gain for our natural gas derivative contracts consisting of $1.1 million of unrealized gain from the increase in the fair value of our open natural gas contracts and $3.8 million of realized gains. During the three months ended March 31, 2023, we recorded a $39.2 million derivative gain for our natural gas derivative contracts consisting of $0.2 million in realized losses and $39.4 million of unrealized gain from the increase in the fair value of our open natural gas contracts.

Unrealized gains or losses on open derivative contracts are recorded as a gain or loss on our Condensed Consolidated Statements of Operations at the end of each month. As a result of the derivative contracts we have on our anticipated production volumes through April 2028, we expect these activities to continue to impact net income (loss) based on fluctuations in market prices for natural gas. See Part I, Item 1. *Financial Statements – Note 4 – Financial Instruments* of this Quarterly Report for additional information.

*Other expense, net –* Other expense, net increased $5.0 million for the three months ended March 31, 2024 compared to the same period in 2023 primarily related to the accrual of additional expenses for net abandonment obligations pertaining to a number of legacy Gulf of Mexico properties.

*Income tax expense –* Our effective tax rates for the three months ended March 31, 2024 and 2023 were (10.0)% and 25.0%, respectively. The effective tax rates differed from the statutory federal tax rate primarily due to the impact of state income taxes, nondeductible compensation, and adjustments to the valuation allowance.

### Liquidity and Capital Resources

### Liquidity Overview

Our primary liquidity needs are to fund capital and operating expenditures and strategic acquisitions to allow us to replace our oil and natural gas reserves, repay and service outstanding borrowings, operate our properties and satisfy our ARO. We have funded such activities in the past with cash on hand, net cash provided by operating activities, sales of property, securities offerings and bank and other borrowings, and expect to continue to do so in the future.

We expect to support our business requirements primarily with cash on hand and cash generated from operations. As of March 31, 2024, we had $94.8 million cash on hand and $50.0 million available under our Credit Agreement, based on a borrowing base of $50.0 million. We also have up to approximately $83.0 million of availability through our “at-the-market” equity offering program, pursuant to which we may offer and sell shares of our common stock from time to time. Based on our current financial condition and current expectations of future market conditions, we believe our cash on hand, cash flows from operating activities and access to the equity markets from our “at-the-market” equity offering program will provide us with additional liquidity to continue our growth and will allow us to meet our cash requirements for at least the next 12 months.

We continuously review our liquidity and capital resources. If market conditions were to change, for instance due to uncertainty created by geopolitical events, a pandemic or a significant decline in oil and natural gas prices, and our revenue was reduced significantly or operating costs were to increase significantly, our cash flows and liquidity could be negatively impacted.

### Cash Flow Information

The following table summarizes cash flows provided by (used in) by type of activity for the following periods (in thousands):

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ ​ | ​ ​ 2023 | ​ ​ ​ | ​ ​ ​ ​ ​ Change |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Operating activities | ​ | $11,642 | ​ | $23,435 | ​ | $(11,793) |
| Investing activities | ​ | (87,619) | ​ | (13,314) | ​ | (74,305) |
| Financing activities | ​ | (2,539) | ​ | (294,089) | ​ | 291,550 |

*Operating Activities –* Net cash provided by operating activities decreased $11.8 million for the three months ended March 31, 2024 compared to the corresponding period in 2023. This was primarily due to a $12.1 million increase in net (loss) income adjusted for certain noncash items offset by a $23.9 million decrease in operating cash flows from changes in operating assets and liabilities. The increase in net (loss) income adjusted for certain noncash items primarily related to a $9.1 million increase in revenues and a $7.9 million increase in derivative cash settlements, partially offset by increases in cash operating expenses. The decrease in operating assets and liabilities primarily related to (i) higher accounts receivable balances due to increased revenues, (ii) lower accounts payable and accrued liabilities balances in the current period and (iii) a $4.8 million decrease in ARO settlements.

*Investing Activities –* Net cash used in investing activities increased $74.3 million for the three months ended March 31, 2024 compared to the corresponding period in 2023. This was primarily due to $80.5 million of acquisition of property interests costs, partially offset by a decrease of $6.1 million in investment in oil and natural gas properties and equipment.

*Financing Activities –*Net cash used in financing activities decreased by $291.6 million for the three months ended March 31, 2024 compared to the corresponding period in 2023. This was due to the redemption of the $552.5 million principal amount outstanding 9.75% Notes in February 2023 partially offset by the net cash proceeds of $275.0 million received from the issuance of the 11.75% Notes in January 2023.

### Capital Expenditures

The level of our investment in oil and natural gas properties changes from time to time depending on numerous factors, including the prices of oil, NGLs and natural gas, acquisition opportunities, liquidity and financing options and the results of our exploration and development activities.

The following table presents our capital expenditures for exploration, development, acquisitions and other leasehold costs (in thousands):

| ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: |
| Exploration and development (1) | ​ | $3,022 | ​ | $7,429 |
| Acquisitions of interests | ​ | 80,515 | ​ | — |
| Seismic and other | ​ | 134 | ​ | (62) |
| Investments in oil and gas property/equipment – accrual basis | ​ | $83,671 | ​ | $7,367 |

(1) Reported geographically in the subsequent table.

The following table presents our exploration and development capital expenditures geographically in the Gulf of Mexico (in thousands):

| ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: |
| Conventional shelf (1) | ​ | $2,122 | ​ | $4,868 |
| Deepwater | ​ | 900 | ​ | 2,561 |
| Exploration and development capital expenditures – accrual basis | ​ | $3,022 | ​ | $7,429 |

(1) Includes exploration and development capital expenditures in Alabama state waters.

As of March 31, 2024, we expect to incur an additional $40.0 million to $50.0 million of capital expenditures in the next 12 months, which excludes acquisitions. In our view of the outlook for the remainder of 2024, we believe this level of capital expenditure will leave us with sufficient liquidity to operate our business, while providing liquidity to make strategic acquisitions. At current pricing levels, we expect our cash flows to cover our liquidity requirements, and we expect additional financing sources to be available if needed. If our liquidity becomes stressed from significant or prolonged reductions in realized prices, we have flexibility in our capital expenditure budget to reduce investments. We strive to maintain flexibility in our capital expenditure projects and if commodity prices improve, we may increase our investments.

### Acquisitions

We have grown by making strategic acquisitions of producing properties in the Gulf of Mexico. We seek opportunities where we can exploit additional drilling projects and reduce costs. In January 2024, we closed on the acquisition of rights, titles and interest in and to certain leases, wells and personal property in the central shelf region of the Gulf of Mexico, among other assets, for $77.2 million, subject to customary purchase price adjustments. The transaction was funded with cash on hand. We also received a final settlement statement for our September 2023 acquisition of certain oil and natural gas producing assets in the central and eastern shelf region of the Gulf of Mexico and recorded an additional $3.3 million of oil and natural gas properties.

Any future acquisitions are subject to the completion of satisfactory due diligence, the negotiation and resolution of significant legal issues, the negotiation, documentation and completion of mutually satisfactory definitive agreements among the parties, the consent of our lenders, our ability to finance the acquisition and approval of our board of directors. We cannot guarantee that any such potential transaction would be completed on acceptable terms, if at all.

### Asset Retirement Obligations

We have obligations to plug and abandon wells, remove platforms, pipelines, facilities and equipment and restore the land or seabed at the end of oil and natural gas production operations. Through the three months ended March 31, 2024, we have paid $3.8 million related to these obligations, and we expect to incur an additional $32.0 million to $40.0 million of payments during the next 12 months. Our ARO estimates as of March 31, 2024 and December 31, 2023 were $529.8 million and $498.8 million, respectively. As our ARO estimates are for work to be performed in the future, and in the case of our non-current ARO, extend from one to many years in the future, actual expenditures could be substantially different than our estimates. See Part I, Item 1A. *Risk Factors*, of our 2023 Annual Report for additional information.

### Debt

As of March 31, 2024, we have $399.9 million in aggregate principal amount of long-term debt outstanding, with $8.5 million in aggregate principal coming due over the next twelve months.

On April 29, 2024, we entered into a Seventeenth Amendment to the Credit Agreement to extend the maturity date of the Credit Agreement to May 31, 2024. We are currently in discussions regarding a potential longer-term extension of the Credit Agreement. The terms of such replacement could vary significantly from those under the Credit Agreement.

For additional information about our long-term debt, see Part I, Item 1. *Financial Statements – Note 3 – Debt* of this Quarterly Report and Part II, Item 8. *Financial Statements and Supplementary Data,* in our 2023 Annual Report.

#### Dividends

On March 5, 2024, our board of directors approved the implementation of a quarterly cash dividend payable to holders of common stock. The initial cash dividend of $0.01 per share of common stock, or $1.5 million, was paid on March 25, 2024, to shareholders of record at the close of business on March 18, 2024. The amount and frequency of future dividends is subject to the discretion of our board of directors and primarily depends on earnings, capital expenditures, debt covenants and various other factors.

### Contractual Obligations and Commitments

Our material cash commitments from known contractual and other obligations consist primarily of obligations for long-term debt and related interest, operating leases, ARO and other obligations as part of normal operations. Except as disclosed herein, contractual obligations as of March 31, 2024 did not change materially from the disclosures in Part II, Item 7. *Management’s Discussion and Analysis of Financial Condition and Results of Operations,* of our 2023 Annual Report.

### THE SUBSIDIARY BORROWERS

Aquasition LLC and Aquasition II LLC are both indirect wholly-owned subsidiaries of us through their parent, Aquasition Energy LLC (collectively, the “Aquasition Entities”). We designated the Aquasition Entities as unrestricted subsidiaries under the indenture governing the 11.75% Notes. Having been so designated, the Aquasition Entities do not guarantee the 11.75% Notes, and the liens on the assets sold to the Aquasition entities have been released under the Credit Agreement. The Aquasition Entities are not bound by the covenants contained in the Credit Agreement or the indenture governing the 11.75% Notes. Under the Term Loan and related instruments, assets of the Aquasition Entities may not be available to mortgage or pledge as security to secure new indebtedness of us and our other subsidiaries.

Below is consolidating balance sheet information reflecting the elimination of the accounts of the Aquasition Entities from our Condensed Consolidated Balance Sheet as of March 31, 2024 (in thousands):

| ​ ​ Assets Current assets: | ​ ​ | ​ ​ Consolidated ​ ​ | ​ ​ | ​ ​ Elimination of Aquasition Entities ​ ​ ​ | ​ ​ | ​ ​ Restricted Subsidiaries ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Cash and cash equivalents | ​ | $94,822 | ​ | $(4,693) | ​ | $90,129 |
| Restricted cash | ​ | ​ 4,417 | ​ | ​ — | ​ | ​ 4,417 |
| Receivables: | ​ |  | ​ | ​ | ​ |  |
| Oil and natural gas sales | ​ | 66,959 | ​ | (16,747) | ​ | 50,212 |
| Joint interest, net | ​ | 18,280 | ​ | 22,026 | ​ | 40,306 |
| Other | ​ | ​ 1,901 | ​ | ​ — | ​ | ​ 1,901 |
| Prepaid expenses and other current assets | ​ | 21,342 | ​ | (1,808) | ​ | 19,534 |
| Total current assets | ​ | 207,721 | ​ | (1,222) | ​ | 206,499 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Oil and natural gas properties and other, net | ​ | 825,628 | ​ | (286,149) | ​ | 539,479 |
| Restricted deposits for asset retirement obligations | ​ | 22,346 | ​ | — | ​ | 22,346 |
| Deferred income taxes | ​ | 38,040 | ​ | — | ​ | 38,040 |
| Other assets | ​ | 32,740 | ​ | (5,706) | ​ | 27,034 |
| Total assets | ​ | $1,126,475 | ​ | $(293,077) | ​ | $833,398 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Liabilities and Shareholders’ Equity (Deficit)** | ​ |  | ​ |  | ​ |  |
| Current liabilities: | ​ |  | ​ |  | ​ |  |
| Accounts payable | ​ | $75,966 | ​ | $(9,252) | ​ | $66,714 |
| Accrued liabilities | ​ | 15,559 | ​ | (5,931) | ​ | 9,628 |
| Undistributed oil and natural gas proceeds | ​ | 52,835 | ​ | (7,171) | ​ | 45,664 |
| Advances from joint interest partners | ​ | 2,864 | ​ | — | ​ | 2,864 |
| Current portion of asset retirement obligation | ​ | ​ 37,745 | ​ | ​ (5) | ​ | ​ 37,740 |
| Current portion of long-term debt, net | ​ | 6,987 | ​ | (6,476) | ​ | 511 |
| Total current liabilities | ​ | 191,956 | ​ | (28,835) | ​ | 163,121 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Asset retirement obligations, less current portion | ​ | 492,066 | ​ | (69,538) | ​ | 422,528 |
| Long-term debt, net | ​ | 384,241 | ​ | (104,949) | ​ | 279,292 |
| Other liabilities | ​ | 37,452 | ​ | (4,125) | ​ | 33,327 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Shareholders' equity (deficit): | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Common stock | ​ | 1 | ​ | — | ​ | 1 |
| Additional paid-in capital | ​ | 588,563 | ​ | — | ​ | 588,563 |
| Retained deficit | ​ | (543,637) | ​ | (85,630) | ​ | (629,267) |
| Treasury stock, at cost | ​ | (24,167) | ​ | — | ​ | (24,167) |
| Total shareholders’ equity (deficit) | ​ | 20,760 | ​ | (85,630) | ​ | (64,870) |
| Total liabilities and shareholders’ equity (deficit) | ​ | $1,126,475 | ​ | $(293,077) | ​ | $833,398 |

Below is consolidating statement of operations information reflecting the elimination of the accounts of the Aquasition Entities from our Condensed Consolidated Statement of Operations for the three months ended March 31, 2024 (in thousands):

| ​ ​ Revenues: | ​ ​ ​ | ​ ​ Consolidated ​ ​ | ​ ​ ​ | ​ ​ Elimination of Aquasition Entities ​ ​ | ​ ​ ​ | ​ ​ Restricted Subsidiaries ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Oil | ​ | $107,015 | ​ | $(185) | ​ | $106,830 |
| NGLs | ​ | 7,469 | ​ | (4,996) | ​ | 2,473 |
| Natural gas | ​ | 21,616 | ​ | (13,957) | ​ | 7,659 |
| Other | ​ | 4,687 | ​ | (1,130) | ​ | 3,557 |
| Total revenues | ​ | 140,787 | ​ | (20,268) | ​ | 120,519 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Operating expenses: | ​ |  | ​ |  | ​ |  |
| Lease operating expenses | ​ | 70,830 | ​ | (13,198) | ​ | 57,632 |
| Gathering, transportation and production taxes | ​ | ​ 7,540 | ​ | ​ (1,807) | ​ | ​ 5,733 |
| Depreciation, depletion, and amortization | ​ | 33,937 | ​ | (2,136) | ​ | 31,801 |
| Asset retirement obligations accretion | ​ | ​ 7,969 | ​ | ​ (1,328) | ​ | ​ 6,641 |
| General and administrative expenses | ​ | 20,515 | ​ | (405) | ​ | 20,110 |
| Total operating expenses | ​ | 140,791 | ​ | (18,874) | ​ | 121,917 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Operating loss | ​ | (4) | ​ | (1,394) | ​ | (1,398) |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest expense, net | ​ | 10,072 | ​ | (2,242) | ​ | 7,830 |
| Derivative (gain) loss, net | ​ | (4,877) | ​ | 5,575 | ​ | 698 |
| Other expense, net | ​ | 5,230 | ​ | ​ | ​ | 5,230 |
| Loss before income taxes | ​ | (10,429) | ​ | (4,727) | ​ | (15,156) |
| Income tax expense | ​ | 1,045 | ​ | — | ​ | 1,045 |
| Net loss | ​ | $(11,474) | ​ | $(4,727) | ​ | $(16,201) |

Our produced oil, NGLs and natural gas volumes (net to our interests) from the Aquasition Entities are as follows:

| ​ ​ ​ ​ Production Volumes: ​ | ​ ​ Three Months Ended March 31, 2024 ​ | ​ 2023 |
| --- | ---: | ---: |
| Oil (MBbls) | 5 | 3 |
| NGLs (MBbls) | 238 | 150 |
| Natural gas (MMcf) | 5,311 | 4,655 |
| Total oil equivalent (MBoe) | 1,128 | 929 |

## Market risk

As filed, 1,552 characters.

Our major market risk exposure is the fluctuation of prices for oil, NGL and natural gas. These fluctuations have a direct impact on our revenues, earnings and cash flow. For example, assuming a 10% decline in our average realized oil, NGL and natural gas sales prices in the three months ended March 31, 2024 and assuming no other items had changed, our revenue would have decreased by approximately $13.6 million in the three months ended March 31, 2024.

We attempt to mitigate commodity price risk and stabilize cash flows associated with our forecasted sales of natural gas production through the use of swaps, purchased calls and purchased puts. Our derivatives will not mitigate all the commodity price risks of our forecasted sales of natural gas production and, as a result, we will be subject to commodity price risks on our remaining forecasted production.

The following table summarizes the historical results of our natural gas derivatives:

| ​ ​ ​ Natural Gas ($/Mcf) | ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 | ​ ​ ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: |
| Average realized sales price, before the effects of derivative settlements | ​ | $2.48 | ​ | $3.23 |
| Effects of realized commodity derivatives | ​ | 0.43 | ​ | (0.03) |
| Average realized sales price, including realized commodity derivatives | ​ | $2.91 | ​ | $3.20 |

Our exposure to interest rate risk has not changed materially from the disclosures in Part II, Item 7A. *Quantitative and Qualitative Disclosures About Market Risk,* of our 2023 Annual Report.

## Controls and procedures

As filed, 2,113 characters.

We have established disclosure controls and procedures designed to ensure that material information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and that any material information relating to us is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, our management recognizes that controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives. In reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Exchange Act Rule 13a-15(b), our CEO and CFO performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our CEO and CFO have each concluded that as of March 31, 2024, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that our controls and procedures are designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended March 31, 2024, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 804 characters.

In addition to the information set forth in this Quarterly Report, investors should carefully consider the risk factors and other cautionary statements included under Part I, Item 1A. *Risk Factors,* in our 2023 Annual Report, together with all of the other information included in this Quarterly Report, and in our other public filings, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Notwithstanding the matters discussed herein, there have been no material changes in our risk factors as previously disclosed in Part I, Item 1A. *Risk Factors,* in our 2023 Annual Report.

Filed May 10, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-007815. Last ingested by Listed: Oct 29, 2026, 19:28 ET. No prices; not investment advice.